In today’s complex business environment, companies need to differentiate themselves by looking to value rather than only cost — and supply management organizations have the potential to provide that, says Steve Bowen, chairman and CEO of global supply chain and operations at Maine Pointe, a Boston-based consulting firm.
“Supply management offers (businesses) a ton of opportunities,” he says. “It has a huge direct effect on costs and cash. But what is often missed is that opportunities are usually related to customers, and differentiating your service capabilities means meeting customers’ demands. Everyone wants to reduce costs. But before you do that, you must consider the opportunities you have and how you define those opportunities based on the markets you serve as well as the marketplaces you want to serve.”
To get better cost advantages, many companies turn to procurement to reduce the number of suppliers, said Bowen, author of Total Value Optimization: Transforming Your Global Supply Chain into a Competitive Weapon. “We all do that and we all need to do that,” he says. “The question is how you go about doing it. That’s what has to change today.”
Creating value is no longer about trying to squeeze everything out of the supplier. It’s about gaining value from the supplier, he says: “It’s a mindset of, ‘Here’s my opportunity in the marketplace, and I need to create a uniquely synchronized and collaborative environment with suppliers that helps me better serve that opportunity with my customers. Yes, I need to be able to do that in the most cost-effective way and the most cash-effective way, which usually means the utilization of capital. And I need to be able to do that in a fashion that doesn’t penalize but instead helps my suppliers do their business better. That means I have to do my business better.’ ”
That’s the premise of Total Value Optimization (TVO), Bowen says. Positioned as the “next Lean Six Sigma,” TVO embraces the customer-facing approach of Six Sigma with a true end-to-end approach based on data analytics and digital technology to create value for all stakeholders.
Such collaboration is still evolving in the marketplace, he notes. Executives might be struggling to get a complete picture of their digital end-to-end supply chains — where collaboration can occur, how value can be gleaned and data analytics best utilized, he says.
One way to start is to get a grasp on the maturity levels of the companies’ functions — procurement, logistics, operations and the like — as well as the depth of the talent pool and data capabilities. “If I can understand where I stand on all of those, now I at least have an evaluation — a grade — of where I think I stand,” Bowen says. Once a company understands its maturity level, it can work to improve it.